**Exhibit 99.1**
**NATIONSHEALTH, INC.**
**Important Factors That May Affect Future Operations and Results**
In this Exhibit 99.1, “we,” “us,” “our” and “NationsHealth” refer to NationsHealth, Inc. and itssubsidiaries.
From time to time, we may make forward-looking public statements, such as statements concerning ourthen expected results of operations, financial resources or our projected plans for the expansionof our business, as well as other estimates relating to future operations. Forward-lookingstatements may be in reports filed under the Securities Exchange Act of 1934, as amended (the“Exchange Act”), in press releases or informal statements made with the approval of an authorizedexecutive officer. In some cases, words or phrases of expectation or uncertainty like “expect,”“believe,” “continue,” “anticipate,” “estimate,” “may,” “will,” “could,” “opportunity,” “future,”“project,” or similar expressions identify “forward-looking statements” within the meaning ofSection 21E of the Exchange Act and Section 27A of the Securities Act of 1933, as amended, asenacted by the Private Securities Litigation Reform Act of 1995.
Statements that are not historical facts are based on our current expectations, beliefs,assumptions, estimates, forecasts and projections for our business and the industry and markets inwhich we compete. These statements are not guarantees of future performance and involve certainrisks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomesand results may differ materially from what is expressed in such forward-looking statements.
We caution you not to place undue reliance on these forward-looking statements, which speak only asof the date on which they are made. In addition, we advise you that the factors listed below, aswell as other factors we have not currently identified, could affect our financial or otherperformance and could cause our actual results for future periods to differ materially from anyopinions or statements expressed with respect to future periods or events in any forward-lookingstatement. We will not undertake and specifically decline any obligation to publicly releaserevisions to these forward-looking statements to reflect either circumstances after the date of thestatements or the occurrence of events which may cause us to re-evaluate our forward-lookingstatements, except as may be required by law.
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act, weare hereby filing cautionary statements identifying important factors that could cause our actualresults to differ materially from those projected in forward-looking statements made by us or onour behalf.
*Risks Related to Our Business*
**We have a limited operating history and are subject to the risks of a new enterprise.**
Our limited operating history makes it difficult to predict how our business will develop. We haveincurred operating losses since we commenced operations in 2002. Accordingly, we face the risksand uncertainties encountered by early-stage companies, such as:
 •  No history of profitability  •  Uncertain growth in the market for, and uncertain market acceptance of, our services  •  The evolving nature of the healthcare marketplace and the Medicare regulatory environment  •  The risks of competition, technological change or evolving patient preferences couldharm sales of our products or services
 

 

**We could experience significantly reduced revenues and net income if Medicare changes, delays,reduces or denies reimbursement.**
We depend on the continued availability of reimbursement by government and private insurance plansfor products sold to our patients. The federal regulatory authorities periodically review andadjust reimbursement amounts. Any reduction in Medicare reimbursement currently available for ourproducts would reduce our revenues. The Medicare Prescription Drug, Improvement, and ModernizationAct of 2003, or MMA, reduced Medicare reimbursement rates for diabetic testing supplies, effectivein 2005. The MMA also reduced reimbursement rates for commonly-prescribed respiratory drugs. Thereduced reimbursement rates for these drugs were effective January 1, 2004, with substantialfurther reductions effective January 1, 2005. The reduction in reimbursement rates will negativelyimpact our revenues and net income. Similarly, any increase in the cost of such products wouldreduce our net income unless there was a corresponding increase in Medicare reimbursement. Ourrevenues and net income could also be adversely affected by the imposition of more stringentregulatory requirements for Medicare reimbursement or adjustments to previously reimbursed amountsor by changes in co-pay amounts.
**If we do not have sufficient capital to fund additional advertising, our ability to grow ourbusiness will be substantially diminished**.
Our growth in revenues to date has been attributable, in large part, to the acquisition of newpatients that have been generated primarily by television advertising, which in turn is dependenton the availability of capital to fund such advertising. At this stage in our development, webelieve our revenues can continue to be increased through additional advertising. If we do nothave access to sufficient capital to fund such advertising, our ability to grow our business willbe substantially diminished. We can provide no assurance that we will have access to sufficientcapital to fund such advertising, or that if we sought to raise additional capital from thirdparties through debt or equity financings, that such capital would be available on acceptable termsor at all.
**If we do not manage our growth successfully, our growth and chances for achieving profitability mayslow or stop.**
We have expanded our operations rapidly and intend to continue this expansion. This expansion hascreated significant demands on our administrative, operational and financial personnel and otherresources, particularly our need for working capital. Additional expansion in existing or newmarkets could strain these resources and increase our need for capital, which may result in cashflow shortages. Our personnel, systems, procedures, controls and existing space may not be adequateto support further expansion.
**The profitability of our supply business will decrease if we do not receive recurring orders frompatients.**
Due primarily to the marketing and regulatory compliance costs associated with the initial patientqualification, we generally incur losses and negative cash flow with respect to the first order forsupplies from a patient. Accordingly, the profitability of our medical products supply businessdepends on recurring and sustained reorders. Reorder rates are inherently uncertain due to severalfactors, many of which are outside our control. These include changing patient preferences,competitive price pressures, patient transition to extended care facilities, patient mortality andgeneral economic conditions.
 

 

**We could experience significantly reduced revenues and net income from sales of diabetes productsif improved technologies developed for glucose monitoring eliminate the need for consumable testingsupplies.**
Approximately 45% of our 2004 revenue and 51% of our 2003 revenue was from consumable diabetictesting supplies. Patients use these supplies to draw and test small quantities of blood for thepurpose of measuring and monitoring glucose levels. Numerous research efforts are underway todevelop more convenient and less intrusive glucose measurement techniques. The commercializationand widespread acceptance of new technologies that eliminate or reduce the need for consumabletesting supplies could negatively affect sales in this market segment.
**Due to our size and limited operating history, we depend substantially on certain key personnel.**
Due to our size and limited operating history, our success depends to a large extent upon thecontinued service of executive officers and key employees, including:
 •  Glenn M. Parker, M.D., Chief Executive Officer;  •  Robert Gregg, Chief Operating Officer; and  •  Lewis Stone, President and Chief Information Officer.
The loss of the services of one or more of these key employees could have an adverse effect on us,as each of these individuals played a significant role in developing our business plan, patientrelationships and proprietary technology systems. While none of these key personnel isirreplaceable, the loss of the services of any of these individuals may be disruptive to ourbusiness. We believe that our future success will also depend in large part upon our ability toattract and retain highly-skilled management personnel. Competition within the medical supplyproducts industry for such personnel is intense. There can be no assurance that we will besuccessful in attracting and retaining such personnel on terms acceptable to us.
**Key personnel have certain rights under employment agreements, which may require us to makesubstantial payments to key personnel.**
We have employment agreements with each of Glenn M. Parker, M.D., Robert Gregg and Lewis Stone. Theemployment agreements provide that if we or the key person terminate employment in severalspecified events, that key person has the right to cause us to repurchase a number of shares of ourcommon stock owned by the key person with a value of up to $3,000,000 based on then current marketprices. Alternatively, we may elect to sell these shares of common stock to third parties or toregister the resale of these shares. In the event a sale or registration results in proceeds lessthan the key person is to receive related to their right to sell, then we shall pay to the keyperson the difference between the requested dollar amount and the proceeds of the sale. Theoccurrence of either of these events could materially and adversely affect us as it may require usto make large cash payments to these individuals, thus reducing the amount of cash available to us.
**We have agreed to purchase a large amount of medical supplies and products from various vendors andwe may not have the cash to satisfy these purchase obligations.**
As of December 31, 2004, we have agreed to purchase a minimum of approximately $89.7 million ofmedical supplies and products from certain vendors at certain intervals through October 31, 2007.This commitment enabled us to receive significant discounts on the medical supplies and productspurchased from these vendors. There can be no assurance that we will generate enough revenues tosatisfy these minimum purchase obligations. Although our purchases of medical supplies haveexceeded these commitments for the year ending December 31, 2004, the minimum commitments forfuture years are significantly higher. Approximately 46% of our purchase commitments were madeunder a distribution
 

 

agreement that we executed with a vendor who subsequently acquired a membership interest inNationsHealth Holdings, which was later converted into common stock of NationsHealth, Inc.
**We may be liable to refund rebates and discounts that we received under agreements with certain ofour suppliers, which liability may reduce the amount of cash available to us.**
We have entered into agreements with several suppliers of medical products which provide forpricing discounts based on purchase volumes and require us to make minimum annual purchasecommitments. The agreements also restrict us from selling medical supplies to other distributorsand wholesalers. Due to our sales of products to one of our affiliated companies in 2002 and in thefirst half of 2003, which in turn resold the products to third parties, one of the suppliers underone of these agreements has alleged that we sold products to non-Medicare beneficiaries incontravention of the agreement. There can be no assurance that the suppliers will not take legalaction against us, including requiring us to refund rebates and discounts that we received pursuantto these agreements. The maximum amount of rebates and discounts which could be subject to suchclaims is approximately $1.6 million. If legal action were commenced, we could incur significantlegal expenses in defending ourself, and could also be subject to substantial liability dependingon how the action is ultimately resolved, whether by settlement or judgment.
**If any of our information technology platforms malfunction, our business and profitability may beseriously harmed.**
Our business relies on proprietary information technology platforms that support the individualenrollment of new members, discount card fulfillment, prescription discount administration,document generation and collection, and patient management. In addition, we use informationtechnology platforms that provide us with electronic connectivity to a large number of pharmacies,shipping vendors and billing services. Due to the relatively high volume, the successful operationof our proprietary information technology platforms is necessary for us to transact businessprofitably. In addition, due to the highly regulated nature of the Medicare billing and paymentprocess, the successful operation of our proprietary information technology platforms is necessaryfor us to be able to operate our business. A malfunction of the information technology systems willbe disruptive to our business operations and, based on the duration of such malfunction, couldresult in reduced sales or profitability and the possible loss of patients.
**We may have difficulties in finding replacement supplies if we lose any agreement with oursuppliers of medical products, which may cause us to experience reduced sales and profitability.**
We receive volume-based discounts under our agreements with suppliers of medical products. Thesediscounts favorably impact our gross margins. Any failure to achieve or sustain volume-baseddiscounts under these supply agreements would negatively affect our profitability. In addition,many of the supply agreements that we have with our suppliers are terminable without cause upon thegiving of a specified number of days’ advance written notice. In the event that one or more ofthese suppliers elects to terminate their supply agreements, we may have difficulties in findingreplacement suppliers, which may prevent us from purchasing a sufficient amount of supplies tosatisfy the demand of our patients.
*Risks Related to Our Industry*
**If we do not comply with applicable government regulations, we may be prohibited from selling ourproducts and could experience significantly reduced revenues and net income.**
The majority of the products that we sell are regulated by the FDA and other regulatory agencies.If any of these agencies mandate a suspension of sales of products or a recall, we may lose salesand incur expenses until we are in compliance with the regulations or change to another acceptablesupplier.
 

 

As a Medicare supplier, we are subject to extensive regulation including, but not limited to, theMedicare DME supplier standards and the federal health care program anti-fraud and abuse laws.While we believe that our current and contemplated future operations materially comply withapplicable regulatory requirements, there are a number of common practices in the industry wherethe law is unsettled and there have not been decided cases or definitive statements by theregulatory authorities concerning such practices. Specifically, we, like many providers of diabetessupplies, obtain glucose monitors from manufacturers without charge and, in turn, provide them toMedicare beneficiaries without charge. These practices potentially implicate the federal healthcare program anti-kickback law and the law prohibiting payment of inducements to Medicarebeneficiaries. Another practice, our telephone calls to beneficiaries based on such beneficiaries’initial telephone calls to an outsourced third-party call center, could implicate the Medicareanti-telemarketing law. Additionally, our retail initiative is a new initiative that couldpotentially raise questions about our role and the role of the retail pharmacy under the MedicareDME supplier standards. In each case, we have evaluated the practices at issue and believe that itis in compliance with applicable requirements. However, there can be no assurance that suchpractices could not be challenged. Any such challenge, regardless of whether successful, could havea material adverse effect on our business.
In addition, any negligence or mistake we make in processing Medicare reimbursement claims couldlead to recoupment of past payments and/or our suspension from the Medicare program.
We are also subject to state laws and regulations, including those governing pharmacy licensing andDME supplier licensing, which are costly and burdensome. Although we believe we are in materialcompliance with such state laws and regulations, our failure to comply or failure to continue tocomply with these state laws and regulations could materially and adversely affect our business.
Finally, under the MMA, the legal framework governing the MMA’s Prescription Drug Discount Card andPrescription Drug Plan is complex, and in many cases ambiguous. Under the MMA, we are not presentlypermitted to market our current Medicare Part B products to enrollees of the PrecisionDiscountsprogram.
Violation of the above-described federal and state laws may result in penalties that include lossor prohibition of payment for services, loss of licenses, fines, and other civil or criminalpenalties, including exclusion from governmental programs.
**The cost of efforts to comply with HIPAA regulations and the possible consequence of non-compliancecould significantly affect our operations and net income.**
As addressed elsewhere in this document, HIPAA is comprised of several components which apply toour Company as a “covered entity.” At this time, we expect to maintain our compliance with theregulations already in effect and anticipate that we will be able to materially comply with theSecurity Standards by their mandatory compliance date. However, if we do not comply with existingor new laws and regulations related to patient health information we may face potential criminal orcivil sanctions. New health information standards, whether implemented pursuant to HIPAA orotherwise, could have a significant effect on the manner in which we handle health care relateddata and communicate with payors, and the cost of complying with these standards could besignificant.
**Our accounts receivable are subject to significant collection risk due to third-party payors.**
Seeking reimbursement from third-party payors is subject to rigorous requirements and involvescomplicated paperwork. This may result in us suffering extremely long collection times, or notcollecting at all, on a significant portion of our accounts receivable. If we are unable to obtainreimbursement from third-party payors, we may seek payment of the entire account receivable fromour patient, who may not be financially capable of making the payment.
 

 

**We could be liable for harm caused by products that we sell.**
The sale of medical supply products entails the risk that users will make product liability claimsagainst us. A product liability claim could be expensive to resolve, even if the claim is resolvedin our favor. While we believe that our insurance provides adequate coverage, no assurance can bemade that adequate coverage will exist for these claims.
*Risks Related to Owning Our Equity Securities*
**A substantial number of shares of our common stock will become eligible for future resale in thepublic market which could result in dilution and an adverse effect on the market price of ourcommon stock.**
There were 21,375,000 shares of our common stock issued in the merger with NationsHealth Holdings,LLC, which will become available for resale in the public market at prescribed times in the futureunder the lock up agreement. In addition, as of December 31, 2004 there were warrants and optionsoutstanding to purchase 9,978,325 shares of common stock. Moreover, 750,000 shares of Millstreamcommon stock purchased by its stockholders prior to the initial public offering will be held inescrow until August 25, 2006, at which time they will be released from escrow and be eligible forresale in the public market subject to compliance with applicable law. Consequently, at varioustimes in the future, a substantial number of additional shares of our common stock will be eligiblefor resale in the public market. Sales of substantial numbers of such shares in the public marketcould adversely affect the market price of such shares and of the warrants.
**Voting control by our executive officers, directors and other affiliates may limit your ability toinfluence the outcome of director elections and other matters requiring stockholder approval.**
Our executive officers, directors and affiliates control the rights to vote a majority of ourcommon stock. These stockholders can control substantially all matters requiring approval by ourstockholders, including the election of directors and the approval of mergers or other businesscombination transactions. This concentration of ownership could have the effect of delaying orpreventing a change in our control or discouraging a potential acquirer from attempting to obtaincontrol of us, which in turn could have a material adverse effect on the market price of our commonstock or prevent our stockholders from realizing a premium over the market price for their sharesof common stock.
**If we fail to maintain an effective system of internal controls in the future, we may not be ableto accurately report our financial results or prevent fraud. As a result, investors may loseconfidence in our financial reporting.**
The Sarbanes-Oxley Act of 2002 will require that we report annually on the effectiveness of ourinternal controls over financial reporting beginning in 2007. Among other things, we must performsystems and processes evaluation and testing. We must also conduct an assessment of our internalcontrols to allow management to report on, and our independent registered public accounting firm toattest to, our assessment of our internal controls over financial reporting, as required by Section404 of the Sarbanes-Oxley Act. In the future, our continued assessment, or the subsequentassessment by our independent registered public accounting firm, may reveal significantdeficiencies or material weaknesses in our internal controls, which may need to be disclosed infuture Annual Reports on Forms 10-KSB and 10-K, as the case may be. Disclosures of this type couldcause investors to lose confidence in our financial reporting and may negatively affect the priceof our common stock. Moreover, effective internal controls are necessary to produce reliablefinancial reports and to prevent fraud. If we have deficiencies in our internal controls overfinancial reporting, it may negatively impact our business and operations.
 

 

**Compliance with changing regulation relating to corporate governance and public disclosure mayresult in additional expenses.**
Keeping abreast of, and in compliance with, changing laws, regulations, and standards relating tocorporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SECregulations, and revised NASDAQ Stock Market rules, have required an increased amount of managementattention and external resources. We intend to invest all reasonably necessary resources to complywith evolving corporate governance and public disclosure standards, and this investment may resultin increased general and administrative expenses and a diversion of management time and attentionfrom revenue-generating activities to compliance activities.
**Our common stock may continue to have a volatile public trading price and low trading volume.**
The market price of our common stock has been volatile. Since our initial public offering in August2003 through February 2005, the price of our common stock on the NASDAQ Stock Market has rangedbetween $8.20 and $4.75. We may experience significant price and volume fluctuations in the futurefor many reasons, some of which may be unrelated to our operating performance.
     Many factors may have a negative effect on the market price of our common stock, including:
 •  Public announcements by us, our competitors or others  •  Regulatory developments concerning the availability of reimbursementpursuant to Medicare  •  Public concern about the safety or efficacy of pharmaceuticals  •  General market conditions and comments by securities analysts  •  Quarterly fluctuations in our revenues and financial results
**Anti-takeover provisions in our governing documents and under Delaware law and our shareholderrights plan may make an acquisition of us more difficult.**
We are incorporated in Delaware. We are subject to various legal and contractual provisions thatmay make a change in control of us more difficult. Our board of directors has the flexibility toadopt additional anti-takeover measures.
Our charter authorizes our board of directors to issue up to 1,000,000 shares of preferred stockand to determine the terms of those shares of stock without any further action by our stockholders.If the board of directors exercises this power to issue preferred stock, it could be more difficultfor a third party to acquire a majority of our outstanding voting stock. Our charter also providesstaggered terms for the members of our board of directors. This may prevent stockholders fromreplacing the entire board in a single proxy contest, making it more difficult for a third party toacquire control of us without the consent of our board of directors. Our equity incentive plansgenerally permit our board of directors to provide for acceleration of vesting of options grantedunder these plans in the event of certain transactions that result in a change of control. If ourboard of directors used its authority to accelerate vesting of options, then this action could makean acquisition more costly, and it could prevent an acquisition from going forward.
Section 203 of the Delaware General Corporation Law prohibits a corporation from engaging in abusiness combination with any holder of 15% or more of its capital stock until the holder has heldthe stock for three years unless, among other possibilities, the board of directors approves thetransaction. Our board of directors could use this provision to prevent changes in management.
The provisions described above, as well as other provisions in our charter and bylaws and under theDelaware General Corporation Law, may make it more difficult for a third party to acquire ourcompany, even if the acquisition attempt was at a premium over the market value of our common stockat that time.